Here’s why Mantra Group Ltd shares got smashed today

One share which has been dividing opinion in recent weeks has been Mantra Group Ltd (ASX: MTR). In July global investment bank Moelis & Company labelled Mantra Group a buy with a $4 price target, but not long after rival investment bank Deutsche Bank went the opposite way downgrading its shares to a sell with a $3 price target.

Analysts at Deutsche Bank will be the happier of the two today after the leading accommodation and hotel operator’s share price plummeted 5% to $3.25 following the release of its full year results.

Despite Mantra Group reporting underlying earnings before interest, tax, share-based payments, defined benefit expense, depreciation, amortisation and impairment (EBITDAI) in line with market guidance at $89.8 million, the market clearly has not been impressed with this 23% increase year on year.

Net profit after tax came in at $43.8 million, which was not only an increase of 21%, but ahead of management’s guidance of $41.5 to $43 million. Earnings per share grew 13.8% to 16.2 cents per share.

Mantra Group’s Resorts segment was the standout performer. The segment delivered revenue of $244.1 million and EBITDAI of $34.8 million, representing a year on year increase of 34.2% and 48.2% respectively. Strong leisure demand in Gold Cost and Tropical North Queensland was a major factor for the increase, along with an increase in capacity from local and international low cost airlines.

The only real disappointment came from its CBD hotels segment. Earnings fell 2.9% in the segment due to slowing demand for its Perth, Darwin and Brisbane hotels as a result of both a decline in the resources sector, government and infrastructure projects.

For FY 2017 the company has forecast EBITDAI in the range of $101 million to $107 million and net profit after tax between $48.5 million and $52.5 million. At the top end of its range this would represent growth of around 19% and 20%, respectively.

Overall I feel this was a solid result and management’s guidance for FY 2017 was very positive. Like Crown Resorts Ltd (ASX: CWN) and SKYCITY Entertainment Group Limited-Ord (ASX: SKC), I expect Mantra Group to benefit from the rising inbound tourism for a number of years to come. So at just 20x full year earnings and paying a fully franked 3.2% dividend, this could be a fair price to buy in at in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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